Wage hike's impact on DoD far from clear

Feb. 20, 2014 - 06:00AM
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A soldier shops at the Fort Bragg, N.C., main exchange store. The effects of a raise in the federal minimum wage on base retail activities is only beginning to be understood. (Lt. Col. Antwan Williams / Army)

A 39 percent increase in the minimum wage for federal contract workers will be good news for the many military spouses and veterans who work for these contractors when it takes effect next January.

But defense and service officials are still far from sorting out other possible effects on military installations — to include prices of products in on-base retail activities and funding for morale, welfare and recreation programs.

Military officials and industry representatives will know more in the coming months about how the Feb. 12 executive order signed by President Obama will affect installations, troops and families.

The minimum wage will increase from the current $7.25 per hour to $10.10 for employees of companies with new federal contracts beginning Jan. 1, and will also apply to replacements for expiring contracts. And it calls for a wage hike each year after, based on inflation.

People serving food to troops and individuals with disabilities maintaining the grounds on military bases were two examples the White House offered of workers who will see their wages increase.

For the Defense Department, the biggest impact may be seen at the installation level, said DoD spokeswoman Maureen Schumann.

DoD contracts touch a large swath of programs for goods and services on military installations, but because those contracts are largely decentralized, many decisions will be made at the base leadership level, Schumann said.

For example, if a contract for janitorial services calls for office cleanings at a specific frequency and bids for a new contract come in higher than expected because of the wage hike, leadership will have to determine how to restructure the contract — possibly by reducing the frequency of the cleaning.

The two largest groups likely to be affected are employees working for companies with janitorial services and food concessions contracts, such as fast food outlets operating as concessions through the military exchanges, said Paco Fabian, a spokesman for Good Jobs Nation, which has advocated for higher wages for federal contract workers.

A February report from the Congressional Budget Office noted that according to conventional economic analysis, increasing the minimum wage improves the lives of low-wage workers by increasing family income.

But it also reduces employment. When employers have to pay their workers more to produce goods and services, they pass some of those increased costs on to consumers in the form of higher prices, which in turn, leads to consumers purchasing fewer goods and services. Then those companies produce fewer goods and services, so they hire fewer workers.

A higher minimum wage also may lead employers to shift to other less expensive options, such as machines and technology.

About 58,000 people work for companies that supply goods and services to DoD retail activities, according to a report from the Coalition to Save Our Military Shopping Benefits. It is not known how many are military spouses and veterans.

However, 25,375 veterans and military spouses have been hired by member companies and associations as a result of the American Logistics Association’s participation int he White House’s Joining Forces hiring initiative, said ALA spokesman Candace Wheeler.

ALA members supply goods and services for sale in commissaries, exchanges and MWR activities.

One industry representative said the wage hike may lead to price increases on hamburgers, subs and other food sold through concessions on military bases, and for other products and services at concessions operated by the exchanges and MWR activities.

It also could lead some concessionaires to decide they just don’t want to do business on bases. One service official said there is concern about a number of concession contracts coming up for negotiations this year.

The industry representative said commissaries also will be affected. For example, delicatessens operate as concessions, and industry employees stock shelves. It’s unclear if the wage hike will affect companies that supply products to commissaries and exchanges.

He said current estimates indicate the higher minimum wage will lower annual earnings of the military exchanges by about $80 million, and of morale, welfare and recreation programs by another $30 to $40 million.

That could mean less money going to military community programs and to build and renovate exchanges. “This compounds a series of events negatively impacting exchanges, including increasing pressure on dividends, decreasing appropriations to military community programs, and decreasing sales because of the troop drawdown,” he said.

“There are emerging severe unintended consequences that will affect these services for troops and families,” he said. “This is uncharted territory.”

“Without the Secretary of Labor’s implementation guidance, we cannot yet fully assess” the impact of the wage hike, said Kristine Sturkie, spokeswoman for the Navy Exchange Service Command.

Officials from the other military exchanges referred questions to defense officials, who did not provide a comment by press time.

A commissary official said it is premature to discuss the potential impact until the executive order is “fully implemented and any new wage determinations are incorporated into DeCA contracts.”